The job market has now more than made up for its pandemic losses, raising confidence that a red-hot job market can hold up while other parts of the economy sour, giving workers historic pay increases and greater leverage over their jobs.
“It’s a strong report,” Labor Secretary Marty Walsh said. “If we look back to the day before Biden took office, 10 million people were out of work. All those jobs have recovered. Some sectors more than that. The buzzword we have now is ‘recession’, but we have to focus on that what we are going through economically is very different from what we have experienced in the past.”
While leisure and hospitality employment fueled July’s surge of 96,000 jobs added, there were huge increases across a broad spectrum of categories. Professional and business services had added 89,000 jobs, with gains in architectural and engineering services, engineering consulting, and scientific research and development. Healthcare provided 70,000 jobs, mostly in healthcare, hospitals and nursing homes. Jobs also grew in government, construction, manufacturing and even mining.
“This report is a fantastic sign for the job market,” said Julia Pollak, labor economist at ZipRecruiter. “There is ample evidence that inflation is falling. Gas prices are going down. Inventory levels are rising. It seems that we can get inflation under control without halting the recovery of the labor market. There is reason to think that the labor market can weather the storm.”
The June jobs report was also revised upwards to 398,000, up from 372,000, demonstrating continued momentum for job growth this summer.
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The July jobs report showed no indication of a slowdown, which proved to be a pillar of strength for an economy facing strong headwinds. Other indicators, notably inflation at its highest point in 40 years and six months of negative economic growth, paint a less rosy picture. Financial markets have lost trillions of dollars in value this year, and a measure of consumer confidence bottomed out in June.
Economists worry that as the Fed continues to raise interest rates and borrowing becomes more expensive for households and businesses, workers may have less influence on the labor market than they did earlier this year. Economists also fear that higher interest rates could lead to a wave of layoffs.
The Dow Jones industrial average fell 200 points on Friday as the great jobs report may give the Federal Reserve more reason to raise interest rates more strongly.
But the economy is showing signs that the labor market can remain robust and continue to recover, even as the Fed raises interest rates to fight inflation.
“Today, the unemployment rate marks its lowest level in more than 50 years: 3.5 percent,” President Biden said in a statement on Friday. “There are more people working than ever in American history. It is the result of my economic plan to build the economy from the bottom up and from the middle.”
Wage growth, while stronger than the Fed would like to see, has not kept up with inflation. The lowest-income households continue to struggle to put food on the table and pay for gas and housing. Average hourly wages rose 0.5 percent this month to $32.27 an hour, continuing the upward trend from earlier this year.
“The most worrying thing about this report is that we haven’t seen the expected moderation in wage growth,” said Karen Dynan, an economist at Harvard University and former chief economist at the Treasury Department. “To be clear, strong wage growth benefits workers in the short term. But the current pace of wage growth is not consistent with low inflation in the longer term.”
The declining employment rate is another concern for economists. In July, the employment rate fell from 62.2 percent to 62.1 percent, raising concerns that some workers are still unable to participate in the workforce.
“Some of the benefits of job creation are not felt because people can’t get to work,” Nick Bunker, director of economic research at Indeed’s Hiring Lab. “It could be a lack of childcare and covid, people sick with covid – and the long-term effects of covid.”
Most private sector workers see wage increases offset by inflation, and a record number of Americans have taken two full-time jobs. Government workers, whose wages lag behind the rest of the workforce, suffer even more from high gas, food and housing prices.
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The number of Americans leaving their jobs remains high, although lower than the peak earlier this year. A record number of workers have left their jobs in the past year, in a phenomenon known as the ‘great layoff’ as a hot job market fueled by the pandemic gave workers more leverage to demand higher wages and better conditions, especially in the leisure and hospitality sectors. While the data indicate that this trend is also fading, the smoking cessation rate remains at its highest level in 20 years.
Elenna Geffrard, a development aid case manager, recently notified her employer in New York that she had found a better-paying job that did the same elsewhere with a lighter caseload.
“I’m quitting because I’ve been wiped out and they’ve given us more cases to handle,” Geffrard said. “I have 40 cases to check. In my new job I get paid more and I only have 20 cases.”
It wasn’t easy to find a new job, Geffrard said. She applied for about 40 last year before getting her offer last week.
Job vacancies fell in June compared to previous months, with a notable drop in retail and wholesale as consumer demand has shifted from goods to services such as dining out, going to the movies and travel.
The number of layoffs reported in June remained constant, despite increasing media reports of job losses in the technology, advertising and healthcare sectors. In June, the information sector, which also includes technology, saw the number of layoffs rise from 0.9 percent to 1.3 percent. Netflix, MasterClass and Coinbase laid off hundreds of employees in June. However, most employers seem to stick with their employees. In addition, workers who lose their jobs seem to quickly find a new job.
“There is no doubt that some employers are just coming out of a time when labor markets were unusually tight, so they may be reluctant to lay off people as they would have done before this period of labor shortages,” said Erica Groshen, an economic adviser at Cornell. University and the Commissioner of the Bureau of Labor Statistics from 2013 to 2017.
Geneva Tucker, a research analyst in Kansas City, Kansas, was fired in May by the Kansas Department of Health and Environment over budget cuts. Tucker has since unsuccessfully applied to about 200 research jobs.
“Initially, I was looking for similar work, but it wasn’t an easy process,” says Tucker, who has a degree in microbiology. “Right now I’m just trying to apply for jobs that my experience is relevant to and that can pay a decent amount of money.”
Unemployed for two months, she has just received unemployment benefits and can barely get by. She has even cut back on the most important groceries.
“It’s a real struggle to make ends meet,” Tucker said. “When gasoline costs $5 a gallon, it’s really hard to drive to job interviews because I can’t afford gasoline. It seems extremely unfair to have all this experience and my degree and to get to this point where I struggle from day to day.”
A roaring job growth could be an encouraging sign that the Federal Reserve hasn’t gone too far in cooling the economy, and they may be able to slow the economy without spelling disaster for the job market.
To contain the highest inflation in 40 years, the Fed has raised interest rates four times this year, including two consecutive three-quarters of a percentage point hike. Fed leaders routinely say they will continue to raise interest rates until months of data show clear and compelling evidence that inflation is turning. However, the risk is that they act so aggressively that companies freeze hiring or are laid off on a large scale, leading to a spike in unemployment.
Still, the latest data on gangbuster jobs seemed to temper those fears, at least for now.
“The Fed needs to worry less about their actions causing a steep slowdown and a potential recession,” said Skanda Amarnath, executive director of Employ America, a left-wing think tank that advocates for the Fed to kick-start the economy. “But in the end, it’s the inflation data for the next two prints, before the September policy meeting.”
The Fed will not decide on a rate hike in August and it is too early to know how far Fed officials will go at their next policy meeting in September. Just last week, Fed Chair Jerome H. Powell noted that more data would come in to shape officials’ understanding of the economy.
Betsey Stevenson, an economist at the University of Michigan and a member of the Council of Economic Advisers during the Obama administration, said it would be a mistake to assume that the only way for the Fed to cool the economy is to stop employers from hiring. The overall jobs report underlined that the job market is still exceptionally tight, Stevenson said, and raised hopes that the Fed could deliver some sort of “soft landing” that avoids a painful recession or high unemployment.
Still, the jobs report showed more evidence of wage growth – which is not a sign of an economic slowdown. Economists are keeping a close eye on signs of a so-called wage-price spiral, where higher prices lead to higher wages in an unsustainable cycle that fuels even more persistent inflation.
“Are employers fighting over a pool of workers, and the battle leads them to drive up wages?” said Stevenson. “One of the reasons I’m optimistic is that they were able to hire 528,000 people, and that means the pool continues to grow… It would be worse if we saw those pay increases and we don’t have job growth. It’s subtle, but super important.”